Third Circuit Jump-starts Class Action, Holding that an Indirect Purchaser Can Bring Federal Antitrust Claims as a Direct Purchaser Based on Assignment of the Claims Even Without Consideration

Antitrust Class Action Truck Transmissions

On September 15, 2016, the Third Circuit jump-started a federal antitrust class action involving truck transmissions, holding that a direct purchaser’s assignment of its federal antitrust claims to an indirect purchaser is valid as long as the assignment was written and express—even if there was no consideration for the assignment. The Third Circuit also held that a proposed class representative’s motion to intervene is presumptively timely if made before class certification.  Wallach, et al. v. Eaton Corp., et al., No. 15-3320 (Sept. 15, 2016).

The named plaintiff, Tauro Brothers Trucking Group, was a purchaser of “class 8” build-to-order trucks from resellers of trucks manufactured by OEM truck manufacturers. The OEMs, in turn, bought various components for the trucks they manufactured from parts manufacturers like Eaton Corp.  Eaton was alleged to be a monopolist in the supply of truck transmissions, and to have conspired with OEMs to maintain that status unlawfully by eliminating from the market a would-be competitor in the manufacture of transmissions, ZF Meritor.  The result was alleged to be higher prices paid by purchasers such as Tauro.

Tauro was a direct purchaser from the resellers of trucks, but only an indirect purchaser from the OEMs and Eaton Corp. One of the resellers from which Tauro purchased trucks expressly assigned its direct purchaser claims to Tauro, and Tauro was the named plaintiff in a purported class action against Eaton and certain of the OEMs.  Defendants opposed class certification, arguing that Tauro lacked direct purchaser standing under Illinois Brick v. Illinois, 431 U.S. 720 (1977), because it was not itself a direct purchaser of the transmissions, and the assignment to Tauro from its supplier was invalid because Tauro provided the supplier with no consideration for the assignment.  And, defendants argued, if Tauro had no claim then class certification had to be denied for lack of a named class representative. The district court accepted defendants’ argument, dismissed Tauro for lack of standing, and denied the motion for class certification.[1]

The Third Circuit reversed. The court noted that it “is beyond dispute that a validly assigned antitrust claim can give direct purchaser standing to an indirect purchaser.”  Slip. op. at 10, n.5.  It emphasized that the assignment at issue was express, and the only issue was whether the assignment of a federal antitrust claim must also reflect consideration to be valid.  The court rejected defendants’ argument that federal common law was inapplicable, as well as their argument that a 50-state survey was required to determine federal common law on the issue.  Instead, the court turned to the Restatement of Contracts as a “starting point for fashioning rules of federal common law . . .,” recognizing the need to “confirm that the proposed rule comports with the underlying purpose and goals of the federal antitrust laws as outlined in Illinois Brick.”  Slip. op. at 23.  The court found that under the Restatement an assignment is valid as long as it is written and express, even without consideration, and that requiring consideration could potentially undermine Illinois Brick by discouraging private enforcement of the antitrust laws.  Accordingly, the Third Circuit held that “consideration is not required under federal common law to give effect to an otherwise express assignment.”  Slip. op. at 28.

The Third Circuit also addressed whether two pre-certification FRCP 24 motions to intervene by proposed class representatives were timely. Tauro was the sole plaintiff, and when it became clear that defendants sought to dismiss its claim based on the purportedly invalid assignment, counsel for Tauro filed motions to intervene on behalf of two new direct purchasers.  The district court denied the motions to intervene as untimely, concluding that although they were filed only two months after the motion to dismiss Tauro, discovery sought months earlier should have put direct purchasers on notice and triggered intervention motions at that time.  The Third Circuit disagreed and reversed the district court’s ruling.  The court noted that the Third Ciruit had previously recognized that a motion to intervene is presumptively timely if made after certification but before the opt-out deadline.  And it agreed with plaintiffs that the rationale for the presumption after certification but before the opt-out deadline applies with “equal force in the pre-certification context.”  Slip. op. at 33-34.

Rather than simply remand to determine whether the presumption should apply, the Third Circuit analyzed on its own the applicable three-factor timeliness test: “(1) the stage of the proceeding; (2) the prejudice that delay may cause the parties; and (3) the reason for the delay.”  Slip. op. at 30 (citations omitted).  It found that the first factor weighed against a finding of timeliness in light of several years of litigation, extensive briefing, and discovery that already had been completed.  But the court also found that the other two factors—the reason for delay and prejudice to the parties—pointed “decisively” in the other direction.  The court rejected defendants’ argument that the fact that counsel for Tauro was also counsel for the two proposed intervenors was sufficient to put the intervenors on notice, because defendants had not challenged the validity of the assignment during the preceding five years and, in general, litigants cannot be required to “divine” the intent behind discovery requests.  The Third Circuit also concluded that there was no prejudice because there was no meaningful delay.

The Third Circuit’s decision contains several important takeaways:

  • The Third Circuit repeated its admonition in Hartig that a challenge to antitrust standing is properly brought under FRCP 12(b)(6) and not FRCP 12(b)(1).
  • The validity of an assignment of federal antitrust claims can be analyzed under federal common law, and at least in the Third Circuit courts can use the Restatement as the starting point for the analysis, informed by the purposes and goals of the antitrust laws.
  • Federal direct purchaser antitrust claims can be assigned as long as the assignment is written and express, even if no consideration was provided for the assignment.
  • A class member’s motion to intervene before class certification is presumptively timely, but that presumption can be rebutted.
  • For purposes of the timeliness analysis, class members who seek to intervene as class representatives are not charged with knowing what has happened in discovery even if they are represented by the same counsel who represents the existing named plaintiffs.

[1] The Third Circuit cited its recent decision in Hartig Drug. Co. v. Senju Pharm. Co., __ F.3d __, No. 15-3289, 2016 WL 4651381 (3d Cir. Sept. 7, 2016), to point out that the district court mistakenly treated defendants’ motion as challenging Article III standing under Rule 12(b)(1) rather than antitrust standing under Rule 12(b)(6).  We discussed Hartig in an earlier blog post available here.